An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.If the risk-free rate is 6%,what should be the value of a put option on the same stock with the same strike price and expiration date?
A) $3.00
B) $2.02
C) $12.00
D) $5.25
E) $8.00

Question

Quizplus · Accepted Answer

Using the put-call parity for American options, the put option value is calculated as: Put = Call + PV(Strike) - Stock Price. Here, Call = $12, PV(Strike) = $35 / (1 + 0.06/2) = $34.48, Stock Price = $43. Thus, Put = $12 + $34.48 - $43 = $3.48, which is closest to $3.00.

An American-Style Call Option with Six Months to Maturity Has